Texas bill to stop insurers from owning shops is revised

The proposed Texas law that would prohibit insurance companies from owning body shops took major steps forward in April, passing the Assembly (HB 1131) and securing enough sponsors to insure passage in the Senate, but ran into stiff opposition from Texas Lt. Governor David Dewhurst, forcing a redrafting of the legislation into a more comprehensive bill, but one that would allow Allstate to keep its current Sterling Collision Centers.

Dewhurst, a Re-publican, told the Associated Press (AP) in early April that he would not permit the legislation in its original language to come up for a vote in the Senate.

Legislative sources said that Dewhurst objected most strongly to the divestiture provisions of the bill which would have required that Allstate and the Inter-Insurance Exchange (Auto Club) divest their interests in Sterling Collision and Caliber Collision.

AP quoted Dewhurst as saying that "This to me is a forced divestiture and it is not fair."

Allstate spokesman Justin Schmitt told AP that "Texas is fortunate to have a conservative lieutenant governor who supports free enterprise and fair competition and understands what's good for consumers and our state's economy,"

Dewhurst further commented that state law already prohibits insurers from steering customers to any particular auto repair body shop, the AP report said.

Wields Senate power

The Lt. Governor, as president of the State Senate, can block a vote on any bill simply by refusing to recognize a motion from the floor to take up consideration of that bill, thereby effectively killing it. Bills in the Senate are heard in the order they are introduced, and given the very short time the Texas legislature is in session, only bills that move to "the head of the line" by a motion from the floor have any chance of being heard.

With Dewhurst's objections to the bill in mind, sponsors drafted new language that would permit insurers to keep any body shops they owned as of April 15, 2003 while at the same time provide that "an insurer may not own or acquire an interest in a repair facility," thereby blocking any further expansion by insurance companies into the collision repair business.

"We briefly considered that approach in California last year," said California Autobody Association lobbyist Jack Molodanoff, who spearheaded similar but unsuccessful legislation in that state, "but decided it would not stand up to a constitutional challenge." Molodanoff questioned how a State can allow one or two insurers to own shops while saying others cannot. "The ones left out will say it puts them at a competitive disadvantage and violates fair and equal treatment."

"We've looked at that," said Texas lobbyist Jay Propes, who works for the group that supported the original legislation, "but lawyers for the people who favor this approach say it would withstand a constitutional challenge."

More comprehensive bill

The original bill was quite simple in its language. Insurers were prohibited from owning collision repair facilities and those that did had a period of time to divest their interests. The new version is more comprehensive and, while it permits Allstate to keep the current Sterling locations, it sets new standards for relationships between an insurance company and its "favored facilities."

The bill establishes that any shop owned by an insurer is a "favored facility" and that other favored facilities - presumably DRP shops such as Allstate's Circle of Dependability shops - must use the same contract and be treated the same as the shops owned by the insurer. All favored facilities would be entitled to 60 days notice and an opportunity to "cure" or correct any breach of the DRP contract before their contract could be terminated.

Strong anti-steering provisions

The proposed revision of the bill contains a virtual laundry list of steering activities that would now be specifically prohibited:

Punishing or rewarding policyholders based upon the choice to utilize or not utilize a tied (insurer-owned) facility;

Soliciting business for its tied facilities;

Sharing information in a manner inconsistent with other favored facilities;

Representing to an insured or claimant that the insurance company is in the business of autobody repair;

Sharing of information regarding policyholders or claims with the tied facility;

Engaging in any joint marketing program with a tied repair facility;

Allowing a tied repair facility to utilize any branding of the parent insurance company;

Subsidization of the tied repair facility;

Discrimination among qualified repair facilities;

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Support services can't be free

The bill also restricts how integrated the operation of a "tied facility" (insurer owned shop) can be to the parent insurance company. It requires that all transactions between the tied facility and insurer be at an arm's length," and that any support services provided by the insurer to the facility must be fairly priced and not just given to the facility, thereby placing non-owned shops at a competitive disadvantage.

Presumably, this would prevent an insurer from requiring that an independently owned DRP shop provide claims administration services without compensation while the insurer handles those same administrative matters itself at no cost to the shops it owns.

Enforcement

The law does not provide for enforcement by state agencies but instead allows an individual shop owner to bring a civil court action to enforce the law and provides attorneys fees if that shop owner prevails in the civil suit.

Finally, if the provision of the bill that allows insurers to keep their present shops should later be held unconstitutional, the "grandfather clause" that permits continuing ownership would be void and the insurers would have to sell the shops within two years.

Next steps

The revised bill requires a hearing date in the Senate before it can move forward. As of press time on April 29, no date had yet been set and sponsors were working feverishly to get the new wording accepted by both sides and to get it on the calendar.

Other States

Texas is not the only state working on the issues of insurer steering and ownership of body shops. In addition to the failed California bill, a South Dakota State Senator introduced such a bill in January, but it was defeated in committee.

The Missouri House of Representatives has a new bill on the table restricting insurer ownership of body shops. House Bill 694, introduced by Representative Michael Daus (D) on March 19, states that no insurer shall acquire ownership interest in a body shop. There are currently no insurer-owned shops in that state.

Michigan legislators are considering a bill that would make it unlawful for insurers to require that an insured to use a particular brand, type, kind, age or condition of parts for the providing of any auto repair or auto glass repair. The same bill, HR 4127, also contains strong anti-steering language and language affecting rates setting; it would set guidelines for insurers which prohibit them from factoring in any special rates they may have with their DRP shops.